UniCredit posts best fourth-quarter in a decade as turnaround advances

MILAN (Reuters) - UniCredit posted its strongest fourth quarter in a decade on Thursday, helped by higher fee and interest income and lower costs, and topped expectations with its first all cash dividend in five years.

The year had started with Italy’s biggest bank raising 13 billion euros from investors, in one of Europe’s largest cash calls, to help clean up its balance sheet under then new Chief Executive Jean Pierre Mustier.

Shares were up 2.5 percent by 1205 GMT, off earlier highs but outperforming a falling blue-chip index in Milan.

Unicredit shares, unlike those of rival heavyweight Intesa SanPaolo, trade at a discount to the value of the bank’s assets and some analysts see room for the stock price to rise as the restructuring process under Mustier progresses.

Net profit was 801 million euros ($984 million) for the quarter, smashing a company-provided analysts’ average forecast of 523 million euros. It was a marked turnaround from the 13.6 billion euro loss in the fourth quarter of 2016 when the bank booked writedowns to its bad loan portfolio to ease disposals.

The bank said this week it had completed a landmark 16 billion euro bad loan sale and would reap a capital benefit in coming months.

Mustier said this year’s net profit would be higher than the 3.7 billion euro adjusted 2017 result as the bank works to meet a 2019 goal of 4.7 billion euros.

UniCredit’s revenues come mostly from lending, unlike at Intesa, Italy’s biggest retail bank, which relies more on fees from asset management and insurance.

The bank expects its interest income, which remained flat last year, to rise in the second half of 2018.

“UniCredit beat on all lines ... but mainly on cost and lower tax rate,” Morgan Stanley analysts said in a note.

BAD LOANS

Italy’s 300 billion euro pile of loans that turned sour during a harsh recession which ended in 2014 is the focus of European Central Bank supervisors’ concerns over Italian banks.

UniCredit held 48 billion euros in bad loans at the end of 2017, or 10.2 percent of total lending, but said in December that it aims to cut that ratio to 7.8 percent in 2019.

Yielding to rising ECB pressure, Intesa Sanpaolo pledged to halve its bad debts under a new four-year plan unveiled this week, while Italy’s third-largest bank Banco BPM also upped its bad loan reduction target on Wednesday.

UniCredit said its core capital stood at 13.02 percent after taking into account a boost from the bad loan sale and the hit from fresh writedowns the bank plans to book this year as a new accounting rule comes into force.